Hardening Positions on Tax Policy Suggest Hard Times Ahead

WASHINGTON -- No other issue is paralyzing the U.S. economy more than the unsettled question of where taxes are headed in the years to come.

That question, raised by a tidal wave of expiring tax cuts that will hit most of us on Jan. 1, is the chief cause of the uncertainty that has swept through our economy, stalling business expansion, capital investment and job creation.

The issue is further complicated by Obamacare and a regulatory maze of mandates, tax increases, penalties and fees that will hit businesses and middle-class Americans alike.

Why hire more workers when the feds could soon show up at your office to tell you how much more it's going to cost your struggling business?

Tax policy is at the center of the "fiscal cliff" toward which we are headed, threatening to raise taxes for 90 percent of Americans when the economy is weakening, consumers are pulling back and the business community is shifting into neutral.

And it appeared this week that the tax battle lines were hardening between Democrats and Republicans in the run-up to the Nov. 6 elections.

President Obama says he will not approve any interim plan to avoid going over the cliff that does not significantly raise the top two income tax rates: the 28 percent rate to 36 percent, and the 35 percent rate to nearly 40 percent.

New York Sen. Charles Schumer, the Senate's No. 3 Democrat, made it clear Tuesday that this is going to be the party line in a bitter post-election fight that economists say could push the economy into yet another recession.

"These promises of lower rates amount to little more than happy talk when the math behind them doesn't add up," Schumer said in a speech at the National Press Club. "It is an alluring prospect to cut taxes on the wealthiest people and somehow still reduce the deficit. But you can't have your cake and eat it, too."

Schumer's political salvo, in a war that begins the day after the presidential election, was met with this withering statement from Senate Minority Leader Mitch McConnell of Kentucky:

"Senior Democrats are now openly acknowledging their plan to hold the economy hostage to massive, job-killing tax hikes, and espousing the fiscally irresponsible view that says the country should be driven off the fiscal cliff," McConnell said.

But while the Democrats clearly want to play short-term politics with this incendiary issue, a longer-term tax-reform movement is gaining strength. It is one that would reduce tax rates to give the economy new incentives for growth, yielding increased revenues that in turn will reduce the budget deficits.